Louisville, Kentucky Utilities defend near-term need for Brown coal units

Louisville Gas and Electric and Kentucky Utilities said in March 18 comments filed at the Kentucky Public Service Commission that the Sierra Club’s attack on the E.W. Brown coal plant as a facility that is old, little-used and should be retired is misplaced.

The two utilities, both subsidiaries of PPL Corp. (NYSE: PPL), are in the middle of a PSC review of their joint integrated resource plan (IRP), which was filed in April 2014. Recent comments by the Sierra Club drew a particular bead on the Brown plant.

Said the utilities: “Grid stability often requires generation from the Brown Generating Station. At the time the Companies performed their 2014 IRP, it was their understanding that placing a 155 MW must-run constraint on Brown Unit 3 would best satisfy grid-stability needs. By the time of the Companies’ 2017 IRP, grid-stability needs from Brown and other generating stations could change, which is neither unusual nor at odds with the snapshot nature of IRP analyses.”

The Sierra Club devotes a lot of ink to arguing that the companies’ 2014 IRP underestimates the likelihood of retiring Brown Units 1 and 2, and incorrectly characterizes Brown Units 1 and 2 as “less efficient than many other coal units in LG&E and KU’s fleet,” said the utilities. “In fact, Brown Units 1 and 2 are two of the Companies’ more efficient coal units from a heat rate perspective. To be clear, the Companies do not have an ideological commitment in favor of or against any energy source or generating unit; the Companies’ goal is now, and has always been, to provide safe and reliable service at the lowest reasonable cost. If that includes operating Brown Units 1 and 2 beyond 2020, the Companies will do so. If meeting that goal requires retiring Brown Units 1 and 2 (or any other units) by 2020 or sooner, the Companies will do that instead.

“The Companies have clearly demonstrated their willingness to propose generating capacity additions other than coal; indeed, the Companies have not proposed to build a coal-fired unit in over a decade, and since then have proposed a significant wind-power [power purchase agreement], natural gas combined-cycle units, the purchase of existing natural gas-fired combustion turbines, a PPA for energy and capacity from natural gas-fired combustion turbines, and a 10 MW solar array. The Commission can therefore be assured that the Companies will continue to evaluate dispassionately the future of Brown Units 1 and 2 in future proceedings, including their future IRP proceedings.”

The March 18 filing concluded with: “The Commission’s approach to the IRP process has worked well for utilities and the Commonwealth for over 20 years, and has allowed the Companies to provide continuous service during that time period, never having to curtail load due to a lack of generation supply. In their 2014 IRP, the Companies have continued to follow that process, as set out in the Commission’s IRP regulation and previous Commission Staff comments, by producing a complete and thorough long-term resource plan and load forecast that take into account all reasonably foreseeable risks and uncertainties. Although nothing in the Environmental Groups’ comments demonstrates the need to change that long-standing and well-functioning process, the Companies will consider whether alternative analyses of possible unit retirements would improve future IRPs.”

Sierra Club says Brown Units 1 and 2 are particular retirement targets

The Sierra Club wrote in its March 4 comments, after citing alleged “flaws” in the IRP preparation: “Most of these flaws bias the IRP analysis in favor of existing coal units. Yet despite this bias, the IRP concludes that in every scenario with a carbon price or a carbon cap, both Brown Units 1 and 2 would operate at such low capacity factors that they should be retired the first year the carbon price or carbon cap goes into effect. As explained below, even in certain scenarios with no carbon price—such as some of the low load, zero carbon scenarios—Brown Units 1 and 2 operate at very low capacity factors. Taken together, the IRP results counsel in favor of closely scrutinizing planned capital spending on Brown Units 1 and 2 to revisit whether retiring the units is the least-cost, least-risk option for ratepayers.”

Another passage from the club testimony said, after touching on costs like compliance with new federal coal combustion waste rules: “We are not suggesting that the Companies must separately model retiring each unit or combination of units in each year of the analysis. But at the very least, in the IRP, the Companies should evaluate scenarios in which generating units that face significant capital costs are instead retired. Brown Units 1 and 2 are small, old, and less efficient than many other coal units in LG&E and KU’s fleet. Moreover, the Companies project that they will incur significant capital costs at Brown from 2016-2021. Thus, the Companies should have modeled retirement of Brown Units 1 and/or 2 in years, such as 2016 or 2017, that would avoid these significant capital expenses.”

It added: “For the IRP modeling, the Companies designated Brown Unit 3 as a must-run resource for all hours in all years. As a result, the model was forced to select Brown Unit 3 at a minimum load of 155 MW. The minimum capacity segment of 155 MW is 38% of Brown Unit 3’s maximum capacity of 411 MW. Above the minimum load of 155 MW, the model could select Brown Unit 3 for economic dispatch, subject to various constraints. The Companies’ IRP does not explain why Brown Unit 3 is designated as must-run in the modeling in all hours of all days. In both this and in future IRPs, the Companies should provide an explanation for must-run designations and only use such designations if justified by reliability concerns.

“The Companies’ modeling results indicate that the most economic option is to retire Brown Units 1 and 2 if there is either a carbon price or a carbon cap. In all of the mid-carbon scenarios, Brown Units 1 and 2 retire in 2020, the first year the carbon price goes into effect. Likewise, in all of the carbon cap scenarios, Brown Units 1 and 2 retire in 2020, the first year the carbon cap goes into effect. Simply put, a mid-carbon price or a carbon cap would result in Brown 1 and 2 running at such low capacity factors that the Companies assume they would be retired.

“In all of the scenarios without a carbon price or carbon cap, the Companies’ modeling projects that Brown Units 1 and 2 do not retire, but instead operate through 2028. However, as mentioned previously, these results underestimate the likelihood that Brown Units 1 and 2 would retire prior to 2028 because the Companies did not evaluate whether future capital and fixed O&M costs, including environmental capital costs, could cause Brown Units 1 and 2 to become more expensive than alternative supply- and/or demand-side options. There is an additional reason Brown Units 1 and 2 are more likely to retire in the zero carbon scenarios than the model results indicate: the Companies relied on an unweighted average of the capacity factor across the three gas prices, thereby effectively assuming that each gas price is equally likely to occur. Such an equal weighting is unexplained and likely underestimates the probability of the mid-gas price occurring.”

The two oldest steam units in the LG&E/KU system are Brown Unit 1 (106 MW net) and Unit 2 (166 MW net), each over 50 years old. The utilities in the IRP put them, but not the newer Unit 3, in a special category of “aging” units. They said that units in this category will have their economics periodically reviewed. More stringent environmental regulations could result in the retirement of these units even without a significant mechanical failure. These are the only coal units in that category.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.